Before: Wald, Williams and Tatel, Circuit Judges
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Appeal of an Order of the Federal Communications Commission
Opinion for the Court filed by Circuit Judge Williams.
In each market area for cellular radio systems, the Federal Communications Commission grants two licenses, one to a telephone ("wireline") company and one to another ("nonwireline") company. When there are competing applicants for a given license, the Commission chooses the licensee by lottery. See 47 CFR Section(s) 22 (1994); Moving Phones Partnership L.P. v. FCC, 998 F.2d 1051, 1053-54 (D.C. Cir. 1993). Appellant, Corporate Telecom Services, Inc. ("CTSI"), won the lottery for the nonwireline license in the Boone, Nebraska Rural Service Area. The FCC nevertheless refused to grant CTSI the license, finding that, because of one Frank Trumbower's interests in CTSI and another applicant, CTSI's application violated the Commission's cross-ownership rule for cellular phone license applications. That rule bars any person from having "an ownership interest, direct or indirect, in mutually exclusive applications filed by publicly-traded corporations," with an exception for interests under 5%. 47 CFR Section(s) 22.921(c).
CTSI now appeals, asserting that Trumbower did not, under any reasonable interpretation of Section(s) 22.921(c), have an ownership interest of 5% or more in the CTSI application and that the agency's rejection of the application was therefore arbitrary and capricious. See 5 U.S.C. 706(2)(A) (1988). We find that the FCC has failed to show how its interpretation of the term "ownership" in Section(s) 22.921(c)-and its rejection of CTSI's application pursuant to that interpretation-serves the provision's stated purpose. We remand to the Commission so that it may consider this question and if possible supply the reasoned explanation necessary to support its conclusion.
The facts are not in dispute. Among those who submitted an application for the Boone area nonwireline license were CTSI, a wholly owned subsidiary of SSE Telecom ("SSE"), and First Cellular Limited Partnership ("First Cellular"). Both SSE and First Cellular are publicly traded companies.
When CTSI filed its application, Trumbower held a 4% interest in SSE (CTSI's parent) as well as a 33% interest in First Cellular. Under the FCC's ownership attribution rules for this licensing program, Trumbower's interest in SSE gave him an equivalent (i.e., 4%) interest in CTSI. See 47 CFR Section(s) 22.921(c)(2)(ii); see also Amendment of the Commission's Rules for Rural Cellular Service, 4 F.C.C.R. 2440, 2443 25 (1988). Thus, Trumbower had an "ownership interest, direct or indirect, in [two] mutually exclusive applications filed by publicly-traded corporations", CTSI's and First Cellular's. Still, both applications were clearly acceptable under the rule, because Trumbower's interest in CTSI fell within Section(s) 22.921(c)'s exception for interests of less than 5%.
Complications arose after the applications were filed but before the lottery winner was selected, when SSE decided to raise additional capital through a private placement of stock. Among the potential investors in the issue was Trumbower, who expressed interest in purchasing stock in an amount that would increase his stake in SSE from 4% to approximately 16%. SSE was keen on selling stock to Trumbower, but there was an obvious hitch: If the transaction went through, CTSI's application would be attributed to Trumbower to the extent of his projected 16% interest in SSE; this interest, combined with Trumbower's continued 33% interest in First Cellular, would clearly violate 22.921(c); and the FCC would surely dismiss both CTSI's and First Cellular's pending applications.
In an attempt to avoid this result, SSE placed all of its stock in CTSI in a stock trust, naming SSE's then-current shareholders as the beneficiaries in proportion to their interests in SSE. As a then 4% shareholder of SSE, Trumbower became the owner of a 4% beneficial interest in the CTSI trust. Although his 4% interest was equitable not legal, no one doubts that it must be attributed to him under 22.921(c).
Only after spinning off its interest in CTSI to SSE shareholders did SSE go through with the private placement of SSE stock. Trumbower then purchased an additional 12% interest in SSE, as planned, bringing his cumulative total in SSE to 16%. On its face the purchase appeared to bring him no additional interest in CTSI, since SSE itself now held no interest in CTSI and had never had any interest in the CTSI trust. Nevertheless, the FCC's Mobile Services Division rejected CTSI's application as defective, the Common Carrier Bureau denied CTSI's request for reconsideration of that decision, and the FCC denied CTSI's petition for review. Corporate Telecom Services, Inc., 9 F.C.C.R. 1012 (1994) ("Corp. Telecom"). The FCC explained that, despite the trust arrangement, Trumbower's 16% interest in SSE gave him a 16% indirect "ownership interest" in CTSI's application; the trust arrangement was inadequate to divorce SSE from CTSI because the trustee, Wilbur Pritchard, "was also SSE's largest single shareholder (48 percent), its chief operating officer, and the chairman of its board of directors". Id. at 1013 Para(s) 10. As such, Pritchard did not "possess[ ] the ...